Profitable firms likely to profit more from wage credit

More profitable companies stand to benefit more from the Wage Credit Scheme (WCS) since bonuses, commissions and overtime pay are included in calculations of gross monthly pay increments.

But this will not detract from the scheme's key objectives, observers say.

It is also too early to gauge whether the three-year WCS may raise staff turnover in the lower-wage segment of the hiring market, they add.

The WCS - under which the government will fund 40 per cent of wage hikes for Singaporean employees up to a gross monthly wage of $4,000 - was much debated in Parliament this week and continued to be discussed out of Parliament too.

Given that it applies to growth in the total remuneration package including bonuses and commissions, more profitable firms able to dish out larger bonuses could conceivably reap more from the WCS. But that is in line with the scheme's stated aim of encouraging companies to share productivity gains with their employees, said OCBC economist Selena Ling.

"From a macro perspective, if a company is not profitable and not going to survive, why would you give them a subsidy? It's not a handout per se. It's meant to help with easing some of the restructuring pains that SMEs are going through," she says.

Basing the scheme on the total remuneration package also discourages companies from merely raising an employee's monthly salary and cutting back on his bonuses. If total remuneration doesn't go up, there's no wage credit.

Also, companies that are not profitable enough to raise wages may well be those which have not invested in productivity, or have yet to realise productivity gains in their profits, notes KPMG tax partner Chiu Wu Hong.

Rather than feeling discriminated against, such firms ought to relook processes to see if they might get a net cash benefit by investing in activities that qualify for Productivity and Innovation Credit and PIC bonus, says Singapore Management University (SMU) accounting professor Sum Yee Loong.

For instance, if a company invests $10,000 in PIC activities, it would receive a dollar-for-dollar matching cash bonus.

If it is loss-making and unable to benefit from the 400 per cent PIC tax deduction, the company can claim a $6,000 cash payout instead and thus gains $6,000 in cash overall.

There have also been concerns that allowing firms to raise wages via bonuses means that the increments will not be sustained past 2016

Singapore International Chamber of Commerce chairman Shankar Iyer told BT on Thursday that companies would probably respond by raising wages via variable components for the three years, and remove that variable pay hike after that.